Exemption U/S. 10(26) Income Tax Act Can't Be Provided Without Proof Of Source Of Income, Residency: Jammu & Kashmir and Ladakh High Court

The Jammu & Kashmir and Ladakh High Court has held that exemption under Section 10(26) of the Income Tax Act cannot be claimed without presenting proof for source of income and residency.

The Court was considering a Writ Petition seeking quashing of order passed by the Principal Commissioner of Income Tax, Srinagar, under Section 264 of the Income Tax Act, 1961 and assessment order passed for assessment year 2014-15.

The division bench of Justice Sanjeev Kumar and Justice Sanjay Parihar observed, "..The petitioner had claimed that he had earned the income in question by conducting religious tours to Syria, Iran and Iraq for the residents of Ladakh. However, he could not furnish any proof to the satisfaction of the Assessing Authority....The resident certificate issued on 28th February, 2022, by the Tehsildar was not proof enough to demonstrate that during the assessment year 2013-14 and 2014-15, the petitioner was residing in the Ladakh region. The Assessing Authority, thus, rightly found the claim for exemption under Section 10(26) of the Act filed by the petitioner, not supported by any evidence....."

The Petitioner was represented by Advocate Huzaif Ashraf while the Respondent was represented by DSGI T.M Shamsi.

Facts of the Case

The Assessing Authority had noticed a cash deposit of ₹1,21,60,300/- by the Petitioner in bank account held with J&K Bank during the financial year 2013-14, relevant to the assessment year 2014-15. It was also found by the Assessing Authority that the Petitioner had neither filed the original return of income nor any response to the Notice under Section 148 of the Act. The Assessing Authority was thus prima facie of the opinion that the said amount of deposit had remained unexplained by the Petitioner for the assessment year 2014-15. Accordingly, a Notice under Section 148 of the Act was served upon the Petitioner calling upon him to comply with the said Notice within a period of thirty days. The Notice was not complied with by the Petitioner. This was followed by Notices under Section 142(1) of the Act, asking the Petitioner to file the details/explanation/documents/evidence etc. However, the Petitioner again failed to comply with the Notice.

The J&K Bank furnished the bank statements of the Petitioner, which indicated different deposits made by the Petitioner in four different accounts. A show cause notice was issued to the Petitioner for completing the assessment under Section 144 of the Income Tax Act

In his response, the Petitioner claimed that he was a resident of Kargil and, therefore, exempted from paying Income Tax under Section 10(26A) of the Act. He also submitted a resident certificate issued by the Tehsildar, Kargil. He indicated the source of income as earnings from conducting religious tours to Syria, Iran and Iraq for the residents of Kargil. It was thus claimed that the income was derived by him on account of these tours.

The impugned order passed by the Principal Commissioner and the order of assessment passed by the Assessing Authority were called in question by the Petitioner primarily on the ground that the Petitioner, being a Schedule Tribe and a resident of Union Territory of Ladakh is exempted from payment of Income Tax under Section 10(26A) of the Act.

Reasoning By Court

The Court noted that the Petitioner could not furnish relevant material/documents to satisfy the conditions explicitly laid down in Section 10(26) of the Act.

"He did submit a Schedule Tribe certificate dated 17th May, 2019, but could not prove that during the relevant year he was residing anywhere in Ladakh region. He also could not sufficiently demonstrate before the Assessing Authority that the amount which was found deposited in his accounts maintained with the J&K Bank, was income derived from source/sources in the specified area. Whether a person is or was residing in the specified area and whether the income in respect of which he is claiming exemption is derived from a source/sources in the said area is a question of fact to be determined by the Assessing Authority on the basis of evidence produced before it," the Court observed.

It stated that the Petitioner could not furnish any proof to the satisfaction of the Assessing Authority that the income in question was earned by conducting religious tours to Syria, Iran and Iraq for the residents of Ladakh. It also added that the resident certificate issued by the Tehsildar was also not proof enough to demonstrate that during the assessment year 2013-14 and 2014-15, the Petitioner was residing in the Ladakh region.

The Petition was accordingly dismissed.

Cause Title: Mehmood Askari vs. Union of India

Appearances:

Petitioner- Advocate Huzaif Ashraf

Respondent- DSGI T.M Shamsi, Advocate Faizan Ahmad, Advocate Umar Rashid

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